Although TSH Resources Bhd has reported disappointing earnings for the first nine months of FY24 (9M24), MIDF Amanah Investment Bank Bhd's (MIDF Research) has maintained its NEUTRAL recommendation and revised TSH's target price upward from RM1.19 to RM1.24, reflecting a 6.2% expected share price return, with a total return of 7.9% when factoring in a 1.7% dividend yield.

For 9M24, TSH's core profit after tax and minority interest of RM62 million, down 17.5% year-on-year (YoY), accounted for 56% of MIDF Research expectations and 63% of consensus forecasts.

The plantation segment, which remains the company's core business, saw a 22% decline in profitability to RM55.8 million despite higher realised crude palm oil (CPO) and palm kernel (PK) prices, which rose 9.3% and 49.3% YoY to RM3,683 per metric tonne (MT) and RM2,485 per MT, respectively.

The profit dip was due to lower production volumes following natural biological yield cycles, disruptions from a social dispute related to the Community Plantation Development Scheme (Plasma), and the impact of Indonesia's export levy and duty on CPO, which totalled RM17.5 million — a 34.9% YoY reduction.

Sales volumes for FFB, CPO and PK also dropped significantly, with decreases of 28.1%, 32.3% and 32.5% YoY, respectively. However, the segment maintained a healthy margin of 25.5%, reflecting stable production costs.

Despite TSH Resources' exposure to favourable CPO price movements as a pure upstream player, operational challenges in its estates in Indonesia and Sabah have limited its ability to fully benefit. With these hurdles in mind, MIDF Research's valuation uses a price-to-earnings ratio of 13 times FY25 earnings per share of 9.6 sen, in line with the company's five-year average mean.